Parkans Intern. LLC v. Zurich Ins. Co.

• Court: U.S. Court of Appeals — Fifth Circuit
• Writing for the Court: Duh&#233
• Citation: Parkans Intern. LLC v. Zurich Ins. Co., 299 F.3d 514 (5th Cir. 2002)
• Decision Date: 05 August 2002
• Docket Number: No. 01-20106.,01-20106.
• Parties: PARKANS INTERNATIONAL LLC, Plaintiff-Counter Defendant-Appellee, v. ZURICH INSURANCE CO. Defendant-Counter Claimant-Appellant.

299 F.3d 514

PARKANS INTERNATIONAL LLC, Plaintiff-Counter Defendant-Appellee, v. ZURICH INSURANCE CO. Defendant-Counter Claimant-Appellant.

No. 01-20106.

United States Court of Appeals, Fifth Circuit.

August 5, 2002.

William Peter Maines (argued), McDade Fogler Maines, Houston, TX, for Plaintiff-Counter Defendant-Appellee.

Bron George Lee, Carol Patricia Keough (argued), Coats, Rose, Yale, Ryman & Lee, Houston, TX, for Defendant-Counter Claimant-Appellant.

Appeal from the United States District Court for the Southern District of Texas

Before DUHÉ, BARKSDALE and DENNIS, Circuit Judges.

DUHÉ, Circuit Judge:

Defendant Zurich Insurance Company issued plaintiff Parkans International, L.L.C., a Commercial Package Policy of primary insurance including crime coverage, and an excess Custom Cover Policy ("CCP"). After suffering a loss caused by the fraud of a third party, Parkans submitted a claim under the crime coverage of the primary policy. Zurich denied coverage, and Parkans sued under both the primary policy and the CCP seeking coverage and damages. After a jury trial, the district court entered judgment for Parkans. For the following reasons, we reverse and render.

I. BACKGROUND AND PROCEDURAL HISTORY

Parkans agreed to purchase scrap metal from Adusa Export, promising payment with an irrevocable letter of credit to be issued by a bank of Parkans' choice and confirmed by a bank of Adusa's choice. Parkans chose Marine Midland which issued the letter of credit. Payment would occur at sight upon presentation of certain non-negotiable documents. Using fraudulent documents, Adusa obtained payment, despite never having shipped the scrap metal. Wells Fargo (the confirming bank) paid Adusa under the letter of credit, and Marine Midland withdrew funds from Parkans' account to pay Wells Fargo. Parkans, having sustained almost a million-dollar loss because of the fraud, notified its insurance broker, who said the loss was not covered. The perpetrators remain at large.

After filing a claim for indemnity under the primary policy, Parkans brought this action alleging that Zurich breached its contracts by failing to indemnify Parkans under both the primary policy and the CCP. Parkans also asked for tort damages against Zurich, alleging bad faith and violations of the Texas Insurance Code and Deceptive Trade Practices Act (DTPA). Zurich denied coverage under both policies and denied any wrongdoing.

Parkans moved for partial summary judgment on the primary policy, arguing that the crime coverage for forgery applied. Zurich moved for summary judgment on both policies and on the damage claims. The court granted Parkans' motion finding coverage under the primary policy and denied Zurich's motion.

The remaining issues went to trial by jury. After having been instructed that the loss was covered under the primary policy and that Zurich's failure to pay the claim was a breach of the primary policy, the jury found that Zurich failed to comply with the CCP. The jury also found that Zurich knowingly engaged in unfair and deceptive practices. The jury awarded $1.34 million for breach of contract, $1.29 million on the tort claims, and $350,000 for attorneys' fees at trial. The district court entered final judgment against Zurich only on the breach of contract award and attorneys' fees, awarding interest and statutory damages as well. Zurich appeals.

II. PRIMARY COVERAGE AND THE PARKANS LOSS

The crime coverage at issue under the primary policy provides:

We will pay for loss involving Covered Instruments resulting directly from the Covered Causes of Loss.

1. Covered Instruments: Checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in "money" that are:

a. Made or drawn by or drawn upon [the insured];

b. Made or drawn by one acting as [the insured's] agent;

or that are purported to have been so made or drawn.

2. Covered Causes Of Loss: Forgery or alteration of, on or in a Covered Instrument.

Finding coverage under the foregoing provisions, the district court determined on summary judgment that Adusa obtained payment on the letter of credit by presenting "forged documents" to Wells Fargo, including forged certificates and a forged bill of lading. This court reviews de novo the trial court's decision on summary judgment. Mid-Continent Cas. Co. v. Chevron Pipe Line Co., 205 F.3d 222, 225 (5th Cir.2000).¹

The summary judgment evidence establishes that the irrevocable letter of credit was payable at sight upon the presentation of certain documents, namely, a commercial invoice, a packing list, a certificate of weight, a quality and weight certificate from a qualified surveying firm, on board bills of lading issued to the order of Marine Midland by the shipper, and Adusa's signed statement certifying that one set of non-negotiable documents was sent by courier to Parkans immediately after shipment. Adusa presented documents purporting to be those documents required by the letter of credit, most on its own letterhead, with an inspection quality and weight certificate ostensibly from Alfred H. Knight (a surveying firm) and bills of lading ostensibly from Crowley American Transport (a shipping company), although all the documents were fraudulent.

Zurich contends that even if forgeries occurred, they were not covered because they were not forgeries of "covered instruments." To be a "covered instrument," a document must be a check, draft, promissory note, or similar written promise, order or direction to pay "Made or drawn by or drawn upon [Parkans]; Made or drawn by one acting as [Parkans'] agent; or [] purported to have been so made or drawn." Even if we view the letter of credit as a "similar ... promise[] to pay," it cannot be a "covered instrument" because it was neither made by, drawn by, or drawn upon Parkans or its agent, nor purported to have been so made or drawn.

The district court recognized that Parkans "may not have been the `technical' drawee in the transaction," but treated Parkans as such simply because it was the party who "ultimately suffered the loss." The district court quoted from and embraced the reasoning of Omnisource v. CNA, 949 F.Supp. 681, 690 (N.D.Ind.1996), which held Omnisource to be the "drawee" "[i]n the sense of `to draw' as to withdraw, to call on funds, or to get from a source." Omnisource quoted from Black's Law Dictionary, American Heritage Dictionary and Webster's New Universal Unabridged Dictionary, in order to define "drawee".

A contextual analysis of the contract is the proper approach to determine the meaning of contractual terms. See Gulf Metals Indus., Inc. v. Chicago Ins. Co., 993 S.W.2d 800, 805-06 (Tex.App.-Austin 1999, pet. denied). The policy uses the term "drawn" in the context of the specific listed instruments and "similar ... promises, orders, or directions to pay." In the commercial paper context the phrases "drawn by" and "drawn upon" are not ambiguous and have a definite legal meaning. A contract term that can be given a definite or certain legal meaning is not ambiguous. National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995). We will not therefore interpose multiple dictionary usages.

The letter of credit itself identifies the drawee as the "Advising Bank," i.e., Marine Midland and not Parkans. Neither the letter of credit nor any of the fraudulent documents presented by Adusa were made or drawn by or drawn upon Parkans. Nor were any of those documents made or drawn by or drawn upon one acting as Parkans' agent. In the letter of credit transaction, Marine Midland acted as principal for itself not as agent for Parkans. See Republic Nat'l Bank v. Northwest Nat'l Bank, 578 S.W.2d 109, 114 (Tex. 1978). Finally, none of the documents were "purported to have been ... made or drawn" by or drawn upon Parkans within the meaning of the policy. The remaining documents were all ostensibly made by Adusa or legitimate enterprises, not Parkans. Adusa's direction to Wells Fargo to pay via wire transfer, even if we consider it a forgery, was not drawn upon Parkans. Accordingly, none of the documents in this case are "covered instruments." We therefore reverse the partial summary judgment in favor of Parkans and render judgment for Zurich, finding no coverage under the primary policy.

III. EXCESS COVERAGE UNDER THE CCP

Zurich moved for judgment as a matter of law that no coverage existed under the CCP. We review denial of a motion for judgment as a matter of law using the same standard as the district court; factual issues are reviewed only for the presence of substantial evidence supporting the verdict, and legal issues are reviewed de novo.² Heller Fin., Inc. v. Grammco Computer Sales, Inc., 71 F.3d 518, 523 (5th Cir.1996).

The CCP applies "excess of, but in the same manner and on the same basis as the primary insurance shown on our Schedule A as applying to Coverage Part A-1."³ Even if the crime coverage in the primary policy is intended to be included in the meaning of the foregoing clause, the loss in this case is excluded because, as discussed above, the documents involved are not "covered instruments" as defined in the primary policy.

Parkans has alternatively argued that CCP provides a gap-filling function, and thus applies here regardless of underlying coverage. Parkans points to no provision in the CCP, however, specifying drop-down coverage if primary insurance does not apply. To the contrary, the CCP has a maintenance provision, requiring that "the primary insurance must continuously: provide no less coverage than written on our Schedule A at inception of our policy." Furthermore, if the primary coverages listed in Schedule A are not maintained, the CCP coverage "will apply in the same manner as if the primary insurance were still in effect, maintained and collectible." We hold that these provisions in the CCP preclude drop-down coverage by showing the intention that the CCP serve only as an...